The US-China Trade Truce Looks Very Fragile

At the G20 meeting that took place in Tokyo, delegations from both the United States and China agreed not to slap any further tariffs on each other and restart difficult trade talks that broke in early May. Although some short-term enthusiasm emerged following the announcement, a resolution in their dispute looks miles away.

Key issues remain

Even though the US President Donald Trump agreed to suspend a new round of tariffs on $300 billion worth of Chinese imports, the main issues that led the negotiations collapse in May are still the same and none of the sides is willing to compromise.

Forced technology transfers, intellectual property theft, and China committing to further open its economy to foreigners are the main sticking point in the deal that the US looks unwilling to abandon. On the other hand, China wants a win-win negotiation and the US not interfering in its internal affairs.

Chinese flag, Beijing, China. 2009 Photo/Daderot

New rounds of negotiations are projected to begin soon, but with so many differences on both sides, it’s hard to call any short-term resolution. The Chinese industrial output continues to fall, while inflation had flattened, as Capex News reported recently, and while the US economy continues to expand at an elevated pace, it could provide incentives for the White House Administration to put further pressure on China.

Huawei plays a stronger role

If the trade was one of the main reasons why the conflict started, the role of Huawei is increasingly bigger, as the US placed the Chinese tech giant on the Entity List back in May, accusing it of working behind closed door with China’s Communist Party.

During the G20 meeting, the US Administration agreed to ease sanctions on Huawei, but the latest news from US officials suggest the company will remain on the Entity List and American companies will be able to sell products under certain circumstances.

Wilbur Ross, the US Commerce Secretary mentioned a few days ago that the US “will issue licenses where there is no threat to US national security”, communicating that Huawei is still perceived as a threat.

On the other side, China recently announced it will put sanction on US companies that sold weapons to Taiwan, a move which could put cold water on the already too enthusiastic environment. Whether or not that will trigger a response from the US President is still uncertain, given that he already announced several times “tariffs are good in negotiations”.